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Salil K. Roy Chowdhury and H.K.Saharay Arbitration Law p 3, (IIIrd edn), Eastern Law House.
The ADR methods are seen to be speedier, more informal and cheaper
than conventional judicial procedure. They provide a forum more convenient to
the parties who can choose the time, place and procedure, for conducting the
preferred dispute redressal process. Further, where the dispute concerns a
technical matter, the parties have the opportunity to select the expert who
possesses appropriate special qualifications or skills in that trade. The study
precedes with the purpose that, alternative disputes redressal mechanisms, are
to be encouraged among the disputants to reduce the delays and high pendency
of cases in Courts. The alternative dispute redressal methods have to be looked
up to with all earnest so that the litigant public has a faith in the speedy process
of resolving their disputes with these processes142.
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under an agreement. It may be less adversarial, less formal, and flexible with
the adoption of simpler procedures. Arbitration does not follow any formal
rules of evidence. The findings are limited to some documents, with no
interrogatories or depositions. Generally, the disputed parties select the
Adjudicators. Adjudicators are selected based on their qualification and
expertise. Their decisions do not formally set precedents to any other
arbitration. Vacation of award is generally limited to arbitrator's misconduct
and bias. Arbitrators normally are empowered to grant compensatory
damages including provisional relief. All these factors usually reduced costs
and makes way for delivery of quick justice 146. The process of Conciliation
and Mediation is distinguishable from Arbitration as the disputed partys
willingness to submit to mediation or conciliation does not bind them to
accept the recommendation of the conciliation or mediator but an
arbitrators award, by contrast, is binding on the parties 147.
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147
1995148 was introduced in the Rajya Sabha on 16 May 1995. The Arbitration
and Conciliation Act, 1996149 received the Presidential assent and was brought
into force from 16 August 1996150,the Act being a continuation of the Ordinance
is deemed to have been effective from 25 January 1996 when the first
Ordinance came into force151. The long title of this Act replicates that, the object
of the Act is to consolidate and amend the law relating to domestic arbitration,
international commercial arbitration and enforcement of foreign arbitral awards
as also to define the law relating to conciliation and for matters connected
therewith or incidental thereto.
4.2.1
SALIENT
FEATURES
OF
THE
and may offer assistance in taking evidence or recovering documents at the request
of the arbitral tribunal or a party to the reference. The award of an arbitrator is
itself enforceable as a decree of Court and is not required to be made a Rule of
Court. The arbitrator has to give reasons for his award. However, no reasons need
to be given if the disputant parties agree before hand to such a thing. In Babar Ali
Vs Union of India153 case it was held by Supreme Court that , The Arbitration and
Conciliation Act,1996 is neither unconstitutional nor in any way offends the basic
structure of the Constitution of India, as Judicial review is available for
challenging the award in accordance with the procedure laid down therein. The
time and manner of the judicial scrutiny can be legitimately laid down by the Act
passed by the parliament.
4.2.2 PREAMBLE
Preamble to the 1996 Act is an introductory, prefatory and an
explanatory note about the sections namely that of the Arbitration and
Conciliation Act, 1996. United Nations Commission on International Trade
Law (UNCITRAL) adopted the UNCITRAL Model Law on International
Commercial Arbitration in 1985. Thereby, the General Assembly of the United
Nations recommended that all countries give due consideration to the said
Model Law, in view of the desirability of uniformity of the law of arbitral
procedures and the specific needs of international commercial arbitration
practice. The United Nations Commission on International Trade Law has
adopted the UNCITRAL Conciliation Rules in 1980. Thereby, the General
Assembly of the United Nations recommended the use of the said Rules in
cases where a dispute arises in the context of international commercial relations
and the parties seek an amicable settlement of that dispute by recourse to
153
conciliation. The said Model Law and Rules has a significant contribution to the
establishment of a unified legal framework for the fair and efficient settlement of
disputes arising in international commercial relations.
Based on the above facts the Parliament of India considered that it was
expedient to make law with respect to arbitration and conciliation, taking into
account the aforesaid Model Law and Rules in the forty-seventh year of the
Republic. The Arbitration and Conciliation Act, 1996 repealed the Arbitration Act
of 1940, the Arbitration (Protocol and Convention) Act of 1937 and the Foreign
Awards (Recognition and Enforcement) Act of 1961. Supreme Court in Fuerst Day
Lawson Ltd Vs Jindal Exports Ltd154 held that the provisions of the Arbitration and
Conciliation Act, 1996 have to be interpreted and construed independent to that
the Arbitration and Conciliation Act, 1940. In order to get any further help in
construing the provisions, it is more relevant to refer to the United Nations
Commission on International Trade Law. The Arbitration and Conciliation Act,
1996 is divided into following parts, Part I deals with the Domestic arbitration.
Part II deals with the Enforcement of foreign awards. Part III deals with the
Conciliation procedures and Part IV of the Act deals with the Supplementary
provisions. Act has three Schedules namely, The First Schedule on the
Convention on recognition and enforcement of foreign arbitral award as per New
York convention, the Second Schedule on the Protocol on Arbitration clauses and
Third Schedule on the convention on the execution of foreign arbitral awards as
per Geneva Convention. In Konkan Railways Corp. Ltd. V. Mehul Construction
Co155 case, Supreme Court of India stated that the Arbitration and Conciliation Act,
1996 was introduced in order to attract
154
A.I.R. 2001 S.C.2293.,and also Sundaram Finance Ltd Vs NEPC India Ltd.AIR 1999 S.C 565.
155
4.3 ARBITRATION
The Arbitration and Conciliation Act, 1996 governs the arbitration
procedures in India. Part-I of the Arbitration and Conciliation Act, 1996
comprises of 43 sections spread over ten chapters, making detailed provisions
relating to domestic arbitration and International commercial arbitration held in
India under this Act. Arbitration means, a process of dispute resolution in which
a neutral third party called arbitrator, renders a decision after a hearing at which
both parties have an opportunity to be heard 156. Arbitration is a consensual process.
It is not a matter of coercion. No arbitration statute can require parties to arbitrate
when they have not agreed to do so. Nor can it prevent them from excluding
certain claims from the scope of arbitration agreement in any manner they choose.
It requires Courts just to enforce privately negotiated agreements to arbitrate, like
other contracts, in accordance with their terms.157.
Black's Law Dictionary, 6th edn. (1990), West Publishing Co., p.105.
157
In Jivaji Raja Vs Khimiji Poonja & Company 158., Bombay High Court
observed that, arbitration is the reference of dispute or difference between two
or more parties to a person chosen by the parties or appointed under statutory
authority, for determination of the same. In a broad sense, it is substitution of
ordinary judicial machinery by a mutually chosen tribunal i.e., an Arbitrator or
an Arbitral Institution.
160
Indu Malhotra & OP.Malhotra, The Law and Practice of Arbitration And Conciliation,2 nd
Edn2006.p115-129
origin in relation to the parties, or the subject matter of the dispute. In this
process, the dispute is decided in accordance with substantive law in India or
any other country, depending on the contract in this regard and the rules of
conflict of laws are termed as International Arbitration.
Institutional Arbitration: It means, an arbitration conducted by an arbitral
institution in accordance with the prescribed rules of the institution. In such
kind of arbitration, there is prior agreement between the parties that in case of
future differences or disputes arising between the parties during their
commercial transactions, such differences or disputes will be settled by
arbitration as per clause provide in the agreement and in accordance with the
rules of that particular arbitral institution. The arbitrator or arbitrators, as the
case may be is appointed from the panel maintained by the institution either by
disputants or by the governing body of the institution. The Arbitration and
Conciliation Act, 1996 gives recognition and effect to the agreement of the
parties to arbitrate according to institutional rules and subject to institutional
supervision. Some of the leading Indian institutions providing for institutional
arbitration are, The Indian Council of Arbitration (ICA), New Delhi, The
Federation of Indian Chamber of Commerce and Industries (FICCI), New
Delhi and The International Center for Alternative Dispute Resolution
(ICADA). Some of the leading international institutions are The International
Chamber of Commerce (ICC), Paris, The London Court of International
Arbitration (LCIA), London and The American Arbitration Association (AAA).
The World Intellectual Property Organisation (WIPO) is an agency of the
United
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Indu Malhotra & OP.Malhotra, The Law and Practice of Arbitration And Conciliation,2 nd Edn
2006.p117
be a more formal document produced by lawyers .162The parties may agree upon, or
in default, the tribunal may adopt the procedure to resolve the dispute only on the
basis of the documents submitted to the tribunal and without any oral hearing or
cross-examination of the witnesses.163
164
Indu Malhotra & OP.Malhotra, The Law and Practice of Arbitration And Conciliation,2 nd
Edn2006.p124-125.
before an application under section 9 can be filled. Thus, the Court is not debarred
from dealing with an application merely because no notice has been issued under
Section21 of Arbitration and Conciliation Act, 1996.
proceedings are that the default does not constitute admission of the liability,
hence does not automatically validate the arguments of a party and secondly
default by a party must not paralyze or even slow down the progress of the
arbitral proceedings. Thus, the arbitral tribunal must primarily examine the
merits of a partys legal and factual arguments and must go ahead despite the
absence of defaulting party. The requirement of due process is complied with
where the defaulting party has been notified of the proceedings and progress
thereof, and has been given opportunity to present its case at each stage of the
proceedings. Thus, the party to the arbitral proceeding cannot obstruct the
arbitration by refusing to participate in the proceedings253.
both parties and the Arbitral Tribunal agree, the settlement can be recorded
in the form of an arbitral award on agreed terms. Such Arbitral Award shall
have the same force as any other Arbitral Award 255.It was held in Malpati
Sevasangh Vs Gujarat State Khadi nad Village Industries Bourd 256 case that,
an effective compromise presupposes that both the parties to the dispute are
willing to abide by the terms and conditions of the agreement. Otherwise, it
cannot be said to be effective because a compromise cannot be one sided, as
both the sides to the dispute should agree for such compromise.
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flexible260. In the arbitral proceedings with more than one arbitrator, the
decision of Arbitral Tribunal will be by majority 261. In the Shin-Etsu
Chemical Co Ltd.Vs.Aksh Optifibre Ltd and another 262 Case it was held that,
in an application for reference rejected on the ground of invalidity of
agreement under Section 45 of the Act, the judicial authority is required to
pass reasoned order after hearing parties. Impugned order is liable to appeal
under Section 50(1) (a) of the Act.
Peter Binder, International Commercial Arbitration In UNCITRAL Model Law Jurisdictions, second
edn,2005 p 238 , para 6-019.
The Arbitration and Conciliation Act,1996. Section 29
(2005)7SCC234
The Arbitration and Conciliation Act,1996. Section 31(1)
Satwant Singh Sodhi Vs State of Punjab 1999 (3) SCC 487
The Arbitration and Conciliation Act,1996. Section 31(3)
1972 (2)SCC 836
Russell on Arbitration ,22nd Ed ,2003 ,p 238,para 6-028.
reviewing the award on any other issue which arose before the arbitrators
. In AK Kraipak Vs Union Of India269 the Supreme Court of India held that
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there is increasing emphasis on the requirement of reasons in all judicial, quasijudicial and arbitral decisions. The award should be dated and place where it is
made should be mentioned. Copy of award should be given to each party 270. In
the Union of India Vs Tecco Trichy Engineers and Contractors 271 case, it was
held that, according to Section 31(5), 'after the arbitral award is made, a signed
copy shall be delivered to each party'. Section 2(1) (h) defines a "party" as
meaning 'a party to an arbitration agreement'. In a large organization like the
Railways, "party" as referred to in Section 2(1) (h) read with Section 34(3) has
to be construed to be a person directly connected and involved in the
proceedings and who is in control of the proceedings before the arbitrator. The
delivery of an arbitral award, to be effective, has to be 'received' by the party
and this delivery by the tribunal and receipt by the party sets in motion several
periods of limitation, therefore it is an important stage in the arbitral
proceedings.
KINDS OF AWARDS
The Arbitration and Conciliation Act, 1996 contemplates four types of
awards, namely the definition of award under Section 2(c) includes an interim
award. Section 31(6) authorizes an arbitral tribunal to make an interim award on
any matter with respect to which it may make final arbitral award at any time
during the arbitral proceeding. Interim award deals only with some of the matters
referred, so that the remaining matters will be dealt with later. As in case of
additional award , Section
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33 (4) provides that, in the absence of an agreement by the parties to the contrary,
a party with notice to the opposing party may, within 30 days from the receipt of
the award, request the arbitral tribunal to make an additional award as to claims
presented in the arbitral proceedings but omitted from arbitral award. If the
tribunal considers such request to be justified, it shall make the additional award
within 60 days from the receipt of the request 272. If the parties settle their dispute
during arbitration proceeding, the arbitral tribunal shall terminate the proceedings
and if request by the parties and not object to by the arbitral tribunal, it shall record
the settlement in the form of an arbitral award on agreed terms .273
Section 35 of Arbitration and Conciliation Act,1996 says that once an arbitral
award has been made, signed and delivered to the parties, subject to the provisions
of part 1 of the Act, it shall be final and binding on the parties and persons
claiming under them respectively. Corollary rule is that an award must dispose of
all the issues in dispute, unless parties have so agreed. There is the residuary
power in the arbitral tribunal to terminate proceeding where it finds that a
continuation thereof has for any other reason, become unnecessary or impossible.
If the situation develops where the arbitration proceedings becomes in-fructus, or
with the continuation of the proceedings becomes impossible, the tribunal shall
order termination of the arbitral proceeding. Like wise if the subject matter of the
dispute is not arbitrable, or the contract has been frustrated or become impossible
of performance and so on the tribunal shall terminate the arbitral proceedings 274.
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The Arbitration and Conciliation Act,1996. Section 32 (2) c , Maharashtra State Electricity Board Vs Datar
Switchgears Ltd, 2003 (Supp) Arb LR 39, 63 (Bom).
In the Bhatia International Vs Bulk Trading S.A 275 case, it was held that
foreign awards are those where arbitration takes place in a convention country;
awards in arbitration proceedings, which take place in a non-convention
country, are considered neither as foreign awards nor as domestic awards under
the Act. The Court also stressed that 'Domestic Awards' include all awards
made under Part I of the Act. Awards made in an international commercial
arbitration held in a non-convention country will also be considered to be a
'domestic award'.
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Section 39
composition of the arbitral tribunal not in accordance with the agreement of the
parties, dispute incapable of settlement by arbitration under the law for the time
being in force and the award being in conflict with the public policy of India. It
was held by the Supreme Court in P. Anand Gajapathi Raju Vs P.V.G .Raju 278
case that, the Court to which the party shall have recourse to challenge the
award would be the Court as defined in Section 2 (e) and not the Court to
which an application under Section 8 of the Arbitration and Conciliation
Act,1996. The Supreme Court of India in, Union of India Vs Popular
Construction Co279 case held that, by virtue of Section34(1), recourse to the
Court against an arbitral award cannot be made beyond the prescribed period.
The time limit prescribed under Section34 to challenge an award is absolute
and un-extendible by Court under Section5 of Limitation Act.
The grounds of challenge under the Arbitration Act1940 were very wide
and included grounds such as 'errors of law arising on the face of the award'
making them more open to the challenge procedure. The Arbitration and
Conciliation Act, 1996 has very limited grounds of challenge based on the
UNCITRAL Model Law. Apart from jurisdictional grounds, the arbitral award
made by the arbitral tribunal can be set aside if the award is in conflict with the
public policy of India. In ONGC Vs Saw Pipes Ltd 280 case, the Supreme Court
interpreted the meaning of 'public policy' in a wide sense in case of a domestic
arbitration. It held that an arbitral award could be challenged on the ground that
it is contrary to fundamental policy of Indian law, the interest of India; or
justice or morality, patently illegal; or so unfair and unreasonable that it shocks
the conscience of the Court. Illegality of a
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trivial nature, however, can be ignored. Under the 1996 Act, awards that
have become final and binding are enforceable in the domestic Courts
system in India and are deemed to be decrees of the Court.
Kanhaya Lal Gauba Vs Peoples Bank of Northern India Ltd AIR 1935 Lah 49;Donald Graham and Co Vs
Kewalram and Ors AIR 1921 Sind 132.
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arbitrations held out of India provisions of Part-I would apply unless the
parties by agreement express or implied, exclude all or any of its
provisions.
The Arbitration and Conciliation Act, 1996 has limited the powers of
Court. This Act has restricted the exercise of judicial powers, in other words
confined the extent of judicial intervention as provided under Section 5 of the
Arbitration and Conciliation Act, 1996. Section 5 says that, "Notwithstanding
anything contained in any other law for the time being in force, in matters
governed by this part, no judicial authority shall
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2001 (8) SCC 470 and MD, Army Welfare Housing Organisation Vs Sumangal Services Pvt Ltd (2004) 9
SCC 619. In DTC Vs Rose Advertising 2004 (3) Arb.LR 86 (Del).
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(2008)4SCC190
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Court, Ahmedabad under Section 37(2), a two judge Bench of the Supreme
Court contented itself by echoing the first part of the Shyam Sundar Agarwal
and Co Vs Union of India 291 case stating that, merely because a second appeal
against the appellant order is barred by the provisions of Section 37(3) of the
Act 1996 ,the remedy of revision under Section115 of Code of Civil Procedure
does not cease to be available to the petitioner. In other words if the Act
contains a provision which bars revisional power of the High Court which
militates against giving effect to a provision of the Act, the revisional
jurisdiction will stand superseded under the Act. Any subsequent appeal can go
only to the Supreme Court by way of a special leave292.
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intervention of expert lawyers, with major gains in speed and economy. Thus,
many disputes as to quality in commodity trades, many disputes arising out of
construction contract etc. can be settled through arbitration in a speedy manner
at lesser cost and more quickly than through Courts. The relevance of
arbitration, its importance and its needs can never be over-emphasized. The
rapid and phenomenal growth of commerce and industry and the complex and
varied problems thrown out by them can find solution only through arbitration.
A final and enforceable decision can generally be obtained only by
recourse to the Courts or by arbitration. In arbitration, since both the parties agree
to the terms and conditions, they are bound by the decisions. It depends ultimately
on the goodwill and cooperation of the parties. Over 134 countries have signed the
1958 United Nations Convention on the Recognition and Enforcement of Foreign
Arbitral Awards, known as the New York Convention. The Convention facilitates
enforcement of awards in all contracting states and there by provides international
recognition of the arbitral awards. On studying the provisions of the Arbitration
and Conciliation Act, 1996 it can be said that, in arbitral proceedings, parties can
place themselves on an equal footing in five key respects viz. place of arbitration,
language used, procedures or rules of law applied, nationality and legal
representation. Arbitration may take place in any country, in any language and
with arbitrators of any nationality. With this flexibility, it is generally possible to
structure a neutral procedure offering no undue advantage to any party.
In the cases of redressal of disputes through Court of law or judicial systems, do
not allow the parties to a dispute to choose their own judges. However, arbitration
offers the parties the unique opportunity to designate persons of their choice as
arbitrators, provided they are
independent. This enables the parties to have their disputes resolved by people who have
specialised competence in the relevant field. Arbitration is faster and less expensive than
litigation in the Courts. Although a complex international dispute may sometimes take a
great deal of time and money to resolve even by arbitration, the limited scope for challenge
against arbitral awards, as compared with Court judgments, offers a clear advantage. Above
all, it helps to ensure that the parties will not subsequently be entangled in a prolonged and
costly series of appeals. Furthermore, arbitration offers the parties the flexibility to set up
proceedings that can be conducted as quickly and economically as the circumstances allow.
The arbitration hearings are not public, and only the parties themselves receive copies of the
awards. This is of great significance in commercially sensitive disputes. Thus, the disputants
often seek to resolve their disputes through arbitration because of such perceived potential
advantages over judicial proceedings.
While the Arbitration and Conciliation Act, 1996 was not intended to supplant the
tried and tested judicial system with the non-formal private arbitration or the purely
consensual conciliation mechanisms. The new law certainly ushered in an era of
privatisation of the hitherto State monopoly over dispute settlement procedures and
institutions in conformity with the global rend of liberalisation of economic policies,
privatisation of industry and globalisation of markets.